On Monday (November 7), as the U.S. dollar index turned down intraday, spot gold recovered most of its losses during the day. Investors continued to assess Friday’s U.S. nonfarm payrolls report and looked ahead to U.S. inflation data due later this week. Earlier, a number of Fed officials publicly stated that they were considering slowing the pace of interest rate hikes.
At 20:14 Beijing time, spot gold fell 0.21% to US$1,677.43 per ounce; the main COMEX gold futures contract rose 0.23% to US$1,680.4 per ounce; the US dollar index fell 0.21% to 110.55. Gold prices fell nearly 0.9% at one point, and the U.S. index rose 0.5% at one point.
The U.S. added 261,000 more-than-expected jobs in October, a sign that the labor market remains tight; but wage growth continued to decline as the unemployment rate rose to 3.7 percent, sparking loose expectations for aggressively hawkish Fed policy, capping the dollar gain.
In the Fed’s view, continued wage or employment growth will continue to stimulate demand, which is negative news in the context of high inflation. So it continues to aggressively tighten monetary policy, even if it means bringing “pain” to the economy.
Solutions can of course come from the supply side, such as the filling of a large number of vacant jobs, enabling companies to produce more goods and services, or easing pressure on food and energy prices should the situation in Ukraine calm down. But there is evidence that supply chains have improved significantly.
The U.S. inflation report due later this week is expected to show headline CPI falling to 8.0% in October from 8.2% previously, while core CPI is expected to fall to 6.5% from 6.6% previously, according to preliminary estimates.If the actual data is in line with downside expectations, gold could rally.
According to the latest data released by CME’s “Federal Reserve Watch”, the market expects the Fed to raise interest rates by at least 50 basis points at its December meeting, but the probability of raising interest rates by 75 basis points for the fifth consecutive time is less than 45%. Some Fed policymakers said on Friday (Nov. 4) that they continued to consider slowing the pace of rate hikes at their next policy meeting.
Fed officials shift gears
Chicago Fed President Charles Evans said the time was ripe for the Fed to slow the pace of interest rate hikes to avoid over-tightening monetary policy and further when risks became “less one-sided.”
He further added that the Fed’s “pre-rate hike” work is almost complete. The current borrowing rate of 3.75-4.00% is only one aggressive rate hike shy of the ideal final rate peak, so the Fed has little room for further rate hikes and could force Chairman Powell to take a “small step forward” approach.
Richmond Fed President Barkin said the new phase means policymakers will “sometimes hit the brakes” and “take more defensive action.” “I’m ready to do that, and I think it means the rate hikes may be slower and longer.”
“We need to get inflation down to target, we need to do whatever we need to do with rates,” Barkin noted. “It’s entirely conceivable to me that rates could end up above 5%, but to me, this Not a plan, but the result of our efforts to control inflation.”
Boston Fed President Collins stressed the need to fight inflation while also weighing the impact of the Fed raising interest rates too quickly. “Policy has moved quickly into restrictive territory, but there is more work to be done. In the next phase of policymaking, my focus is to move from rapid rate hikes to determining where rates have to go.” She noted that inflation has fallen too slowly And the risk of the economy weakening too quickly is being balanced.
Collins believes a “significant slowdown” in the economy is necessary to reduce inflation, and “it will become increasingly important to balance the risk that economic demand may slow too much with the risk of allowing high inflation to persist for so long that inflation expectations are derailed.” “As policy tightens further, the risk of over-tightening increases,” it added.
Fed officials stoked a “gear shift” that the U.S. central bank may slow the pace of future rate hikes, fueling fears and putting downward pressure on the dollar for a second straight session. That, in turn, has provided some support for dollar-denominated gold, although a combination of factors has limited any meaningful gains in gold prices.
Fed still ‘doing nothing’ to cool labor market
Fed chair is one of the toughest jobs in Washington, DC. His mission is to contain high inflation not seen in nearly 40 years, while avoiding a major recession. But Powell’s most difficult task may be to continue to call for public trust in the Fed at a time when distrust of the central bank is also at its highest level in 40 years.
According to this year’s Gallup poll, Americans’ confidence in the Fed is at its lowest point. Only 27% had “great” or “considerable” confidence in it. This is the lowest level since polls began in 1979. Concrete confidence in the Fed has also deteriorated recently, with just 37% bullish on the institution, also near record lows.
Despite market and political pressures, Powell wants to “hold on” and has won the goodwill of a majority of lawmakers in both parties. But the looming recession is not something people have made out of thin air, and one has to look at the Fed’s aggressively hawkish policies.
Former New York Fed President Dudley said the central bank was still “getting nothing” in cooling the labor market after raising interest rates four times in a row by 75 basis points. Unfortunately, this will cause a lot of pain for the rest of the world, as the dollar appreciates as the Fed tightens monetary policy, which will put more pressure on other emerging market economies, especially those with a lot of dollar debt body.
It’s a battle of credibility, and it’s also a battle of getting the policy right.If investors, companies and consumers believe that the Fed is taking high inflation seriously, they will anchor their expectations — short gold and long the dollar. Otherwise, the Fed’s price stabilization mandate is at risk.
Spot gold may rise to $1690
On the hourly chart, gold prices found support near $1,666, which is the 23.6% Fibonacci retracement level of the upward range of $1,616-$1,682. If the price of gold starts a new rally, it will see $1,690 in the short-term outlook; on the contrary, the price of gold is expected to further pull back to the 38.2% Fibonacci retracement level of the upward range of $1,616-$1,682 at $1,657.